Moody's: How a public option could impact insurers' bottom lines

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A new report examines how the public option could impact insurers' finances. (Getty Images/martince2)

As the public debate on health reform rolls on, a new report from Moody’s Investors Service analyzes how these different approaches could impact insurers’ bottom lines. 

Perhaps unsurprisingly, the analysts warn a full single-payer overhaul would pose an “existential threat” to the finances of health insurers, though a single-payer system would likely include a role of some kind for private payers. 

However, the introduction of a public option plan would have a less dramatic impact—depending on how many people enroll in the plan, that is. 

“All three of the proposal types we examined focus on increasing access to care while reigning in costs,” Jonathan Siegel, vice president at Moody’s and one of the report’s authors, said in a statement. 

“However, they would also affect revenue and profitability across the healthcare industry, although credit implications would depend largely on how many people switch from an existing private insurance plan to a public plan,” Siegel said. 

RELATED: A look at policy pathways for health insurance reform—3 takeaways 

Under a limited public option, the government-run plan would compete in the market directly with insurers, but relatively few people would be eligible, leaving much of their current consumer base intact, Moody’s said. 

Moody’s analysts estimate that roughly 20 million people who currently purchase plans on the individual market would be eligible to enroll in a limited public option plan. A public option plan could also attract some of the uninsured population into the health system. 

However, under this model the 150 million people who are covered through their employers would be undisturbed, Moody’s said. 

A more extensive public option plan, by contrast, would prove more disruption, according to the analysis, as it would give people with employer plans the choice to opt out of that coverage and to instead enroll in the public plan. 

If a large number of people were drawn into the public option, it would significantly impact the financial performance of private insurers, Moody’s said. Some public option proposals would automatically enroll some of the uninsured population into the plan, which could further chip away at the employer market, according to the report. 

“A public option that can provide similar benefits to those of private plans at reduced costs would eat into the market shares of private insurers and pressure them to lower premiums or increase benefits, eroding their profitability,” the Moody’s analysts wrote.